Residential Buildings - challenges and opportunities for energy efficiency Budapest, 28 June 2010 Gabor Kiss Alexander Hadzhiivanov European Bank for Reconstruction and Development

| 1 Buildings – the global hidden culprit of Climate Change SOURCE: 1- EU EEAP, 2006; 2- IEA, WEO 2007 & ETP 2008 The largest end-use energy consumer: 41 % of all energy use in EU 1 (even larger, i.e. 50% < in some countries in the region); The largest energy saving potential: 41 % of all the potential in EU 1 up to 2020 (even larger, i.e. 50% < in some countries in the region - Russia); Buildings are among the major contributors to CO2 emissions globally: 20% of direct global CO2 emissions; If nothing done the direct and up-stream carbon footprint of buildings will grow from 8.7 G t to 20.1 G t CO2 globally 2, and Political commitment (i.e. EU 20% EE target 2020) can not be met without addressing the building sector;

| 2 Buildings – largest and most cost effective carbon abatement opportunities SOURCE: 1- McKinsey Global Institute, 2007

| 3 Buildings – where to go? SOURCE: 1- World Business Council for Sustainable Development EU building sector need to be at least 4 energy classes better than today by ; Aggressive regulatory is introduced: EPBD, ISO EN standards, timeframe for zero-carbon buildings, energy certification, certificates of sustainability (BREEAM, LEED); Sustainable development “Business as usual”

| 4 Buildings – how the Bank responds? Building EE as one of new priority areas under SEI, Phase 2; Support of Projects with the best energy performance; Technical assistance: professional consultants, development of corporate policies, training and capacity building TCs; Maintaining Policy Dialogue (policy&regulatory barriers); Low energy properties – a driver toward capacity building and expanding market for EE techniques in the building sector;

| 5 Barriers to sustainable energy financing for banks The same in all the countries in the region : ▪ Uncertainties about market demand for EE financing ▪ High transaction costs due to fragmentation of the residential sector (variety of stakeholders and their lack of organisation) ▪ Liability of stakeholders ▪ Legal enforcement in the property and residential sector ▪ Lack of technical expertise for appraisal and risk assessment ▪ Information asymmetries and misconceptions about the technical risks and financial benefits of energy efficiency ▪ Lack of specific structures for implementation ▪ No specific marketing tools or budget allocated for such activities ▪ Tenors needed longer than those of commercial business lending

| 6 Institutional and regulatory barriers Insufficiencies of housing legislation: ▪ Legal statute of associations of apartment owners; ▪ Responsibilities and legal liabilities of Associations; ▪ Management of Associations ▪ Decision making procedures ▪ Relationship with management companies and utilities Insufficiencies of building regulatory ▪ Lack of energy performance classification ▪ Lack of energy certification scheme ▪ Structure and complexity of energy efficiency requirements ▪ Lack of institutionalised energy assessment procedures ▪ Insufficient institutional framework supporting energy performance assessment

| 7 EBRD integrated approach Tailor made financing vehicles reflecting country and market specifics: ▪ REECL-type (Bulgaria); ▪ SlovSEFF type (Slovakia) Capacity building: local banks, technical consultants & engineers, local authorities Awareness raising: general public, project stakeholders, authorities Corporate sector: technology and service providers, utilities, project developers; Policy dialogue: assistance on development/upgrade of supportive legal and regulatory framework: ▪ Law on Energy efficiency of buildings (Moldova, Kyrgyzstan) ▪ Secondary legislations: technical reglaments, ministerial decree/ordinances (Russia, Ukraine, Moldova, Kyrgyzstan); ▪ Tertiary legislation: technical rules and standards (Moldova, Kyrgyzstan); High leverage of national (Donor funded) support programs;

| 8 Financing mechanisms (1) REECL – type: addressing dwelling level EE (apartments, family houses) EBRD Participating Banks Sub-Borrower Project Consultant € Credit Line € Loan Agreement ConfirmsSub-Project compliance; Verifies implementation Support Program Funded Contract Training And Marketing Support Financing disbursed: € 43 million (Oct. ‘05–Jan.’10) Leverage of technical assistance to total investments is 31.6 Leverage of incentives to total investments is 5.9 Number of projects: 28,125 (ab. 7,000 per year) Number of residents affected with improved housing conditions: 69,100 Financial revenues from energy savings: € 10.6 million per year Energy savings: GWh per year Energy generation capacity substituted: 19.1 MW Carbon reductions: 170,530 tons CO2 per year

| 9 Financing mechanisms (3): REECL market penetration rate High performing (eligible) technologies Share funded by REECL EE Windows;Close to zero=> 4% 30% High grade insulation (roof, wall, floor);Close to zero=> 3% 18% Efficient Gas boilers and associated heating systems;Close to 45%=> 78% 13% Biomass Boilers and StovesClose to 30% =>40% 6% Solar Water HeatersClose to 8%=> 14% 34% Heat Pump Heating (air-to-air)Close to 5%=> 25% 18%

| 10 Financing mechanisms (4) REECL 2 – type: addressing both dwelling as well as building level EE (groups of residents, informal associations, associations as legal entities, ESCOs, management companies, construction companies) Accent on promotion and support of Housing Associations: ▪ Legal advise; ▪ Standard set of institutional/management documentations ▪ Conceptual design for complex building refurbishment; ▪ Attendance on General Meetings when decisions on refurbishment made; Wider spectre of eligible techniques (gasification, photovoltaics, heat recovery mechanical ventilation in addition); No incentives for participating banks; High performance requirements of eligible techniques; Variable incentives for different categories of Borrowers and per type of projects

| 11 Financing mechanisms (5) SlovSEFF – type: addressing complex building refurbishment through financing housing associations (adequate housing legislation required) EBRD Participating Bank Sub-Borrower Independent Energy Expert Consultant € Credit Line € Loan Agreement Technical Assistance Energy Audits Implementation Verification Training And Marketing Support EBRD Participating Bank Sub-Borrower Independent Energy Expert Consultant € Credit Line € Loan Agreement Technical Assistance Energy Audits Implementation Verification Training And Marketing Support Support Program Funded Contract Support Program Funded Contract

| 12 SlovSEFF results Financing disbursed: € 38 million ( ) Leverage of technical assistance to total investments is 32 Leverage of incentives to total investments is 7.4 Number of projects: 218 apartment buildings (12,000 apartments) Number of residents affected with improved housing conditions: 25,000 Financial revenues from energy savings: ab. € 3.2 million per year Energy savings: 55 GWh per year Carbon reductions: 28,400 tons CO2 per year

| 13 Conclusions ▪ High level support on financing EE is present at EBRD; ▪ Policy dialogue between EBRD and the national Governments needs to result in concrete outputs; ▪ Resources, experience and mechanisms of financing EE available at EBRD; Thank you!